HDGE: May 2020 Portfolio Manager Review

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. For the fund’s most recent standardized and month-end performance, please click www.advisorshares.com/etfs/hdge.

Performance

For the month of May, the AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) lost -10.63% on market price while the S&P 500 Index gained 4.76%.

Performance History (05.31.2020) HDGE NAV (%) HDGE Market (%)
1 Month -10.89 -10.63
3 Month -8.47 -8.27
Year-to-Date -3.24 -2.80
1 Year -24.93 -24.76
3 Years -16.47 -16.44
5 Years -13.57 -13.57

As stated in the Prospectus, the total annual operating expenses are 3.12% (includes 0.18% acquired fund fees). Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. For the fund’s most recent month-end performance please visit  www.advisorshares.com/etfs/hdge.

Markets Review

S&P 500 Relative Strength Stock Market Index is Most Overbought Ever: Be  careful!  

We use numerous indicators to guide us on the strength and weakness of the  stock market in terms of when to buy, sell or take defensive measures. One of the important short-term indicators we follow is the 14-day S&P 500 Relative Strength index (RSI) which shows us the percentage of stocks that are overbought or oversold in the S&P 500. When the S&P 500 RSI  is above 70% that tells us the stock market is overbought, which requires us to take defensive measures. Similarly, a reading of 30% or lower tells us that the market is oversold. That generally indicates a buying opportunity. The chart below shows us that the S&P 500 RSI is not only over 70 but has reached its most overbought level ever. That is an indication to be very careful, especially in the short-term. 

May’s rally was marked by a return to a strongly pro-risk posture among investors. The embrace of risk drove lower quality stock outperformance. Two Rivers Research notes that stocks of unprofitable companies gained substantially relative to their stock universe.

Unsurprisingly, highly shorted shares, which tend to represent lower quality companies, rose as well. Both indicate an excess of speculative fervor among equity investors.

“Days to cover” measures approximately how many days it will take short sellers to cover their existing short positions in a stock given the number of shares traded daily. The higher the number, the longer it will take shorts to cover their positions, and potentially the higher the probability of a ‘short squeeze’.

Stocks were grouped and ranked by the relevant factor as of the end of the prior month and the returns computed for the month just ended. Stocks chosen were based on Two Rivers Analytics’ universe of stocks. © Copyright 2019. All Rights Reserved Two Rivers Analytics. Further Distribution Prohibited without prior permission.

Portfolio Review

For the month of May 2020, the largest realized and unrealized gains were LendingClub Corp (LC), Weibo Corp Sponsored ADR Class A (WB), HSBC Holdings PLC Sponsored ADR (HSBC) and Baozun Inc Sponsored ADR Class A (BZUN). LendingClub (LC) stock fell -30.25% in May. LendingClub’s online lending platform is focused on subprime consumer loans. We shorted the stock due new competition for such loans, as well as their heightened economic exposure to a downturn. We have covered the short. Social media company Weibo Corp (WB) stock dropped dramatically mid-month, ending down -18.01%. Weibo reported a drop in advertising revenue of 19%, a drop in the VAS revenue of 17% and a drop in their key accounts business of 24%. HSBC Holdings (HSBC) stock fell -10.42% in May. The stock fell largely on intensifying fears about weakness in China and related concerns regarding china’s crackdown on HK sovereignty.

The largest realized and unrealized losses for May were Appian Corporation Class A (APPN), Elastic NV (ESTC) and Credit Acceptance Corporation (CACC). Software and service provider Appian Corporation (APPN) stock rode the low quality rally to a gain of 24.72% on the month. The stock also rose in sympathy with Microsoft’s acquisition of a competitor in the RPA (robotic process automation) space. We covered the short. Elastic (ESTC) stock rose the same wave to rise 33.96%. Elastic provides big data software tools. We covered the short. Credit Acceptance Corporation (CACC) stock rose 18.70%. The business originates subprime auto loans, then repackages them into asset backed securities. Credit quality is deteriorating across the economy in a lending market that had seen easy terms for too long.

Top Holdings

Ticker Security Description Portfolio Weight %
CACC CREDIT ACCEPTANCE CORP -3.06%
T AT&T INC -2.45%
HGV HILTON GRAND VACATIONS INC -2.35%
VALE VALE SA-SP ADR -2.26%
GPC GENUINE PARTS CO -2.21%
CAJ CANON INC-SPONS ADR -2.21%
CNI CANADIAN NATL RAILWAY CO -2.14%
TD TORONTO-DOMINION BANK -2.12%
WYNN WYNN RESORTS LTD -2.07%
IAA IAA INC -2.04%

As of 05.31.2020. Cash not included.

Respectfully,

Brad Lamensdorf
Ranger Alternative Management
AdvisorShares Ranger Equity Bear ETF (HDGE) Portfolio Manager

 

Past Manager Commentary

Definitions:

The S&P 500 Index is a free-float capitalization-weighted index based on the common stock prices of 500 American companies. It is one of the most commonly followed equity indices and many consider it the best representation of the market and a bellwether for the U.S. economy.

A Bear Market (Bearish) is a market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows. Although figures can vary, for many, a downturn of 20% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor’s 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bear market.

A Bull Market (Bullish) is a financial market of a group of securities in which prices are rising or are expected to rise. The term “bull market” is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities.

A short position is the sale of a borrowed investment with the expectation that it will decline in value.

Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.

Implied Volatility is the estimated volatility of a security’s price. In general, implied volatility increases when the market is bearish and decreases when the market is bullish. This is due to the common belief that bearish markets are more risky than bullish markets.

The Volatility Index (VIX) is the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant
to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the “investor fear gauge”. The VIX is a contrarian sentiment indicator that helps to determine when there is too much optimism or fear in the market.


Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by visiting www.advisorshares.com. Please read the prospectus carefully before you invest. Foreside Fund Services, LLC, distributor.

There is no guarantee that the Fund will achieve its investment objective. An investment in the Fund is subject to risk, including the possible loss of principal amount invested. The Fund may invest in (or short) ETFs, ETNs and ETPs. In addition to the risks associated with such vehicles, investments, or reference assets in the case of ETNs, lack of liquidity can result in its value being more volatile than the underlying portfolio investment. Other Fund risks include market risk, equity risk, short sales and leverage risk, large cap risk, early closing risk, liquidity risk and trading risk. Short sales involve leverage because the Fund borrows securities and then sells them, effectively leveraging its assets. The use of leverage may magnify gains or losses for the Fund. See prospectus for specific risks and details.

Shares are bought and sold at market price (closing price) not NAV and are not individually redeemed from the Fund. Market price returns are based on the midpoint of the bid/ask spread at 4:00 pm Eastern Time (when NAV is normally determined), and do not represent the return you would receive if you traded at other times. 

Holdings and allocations are subject to risks and change.

The views in this commentary are those of the portfolio manager and many not reflect his views on the date this material is distributed or any time thereafter. These views are intended to assist shareholders in understanding their investments and do not constitute investment advice.